Rock investors to fight state takeover

Northern Rock shareholders will meet tomorrow in a desperate bid to head off what looks like imminent nationalisation. They have learned that the Government has appointed a senior City troubleshooter to act as chief executive to lead a taxpayer-funded rescue.

Chancellor Alistair Darling warned investors last week that they could lose their money if the bank is sold and the proposed takeover was branded a 'humiliation' for ministers by Tory leader David Cameron.

Shareholders are due to hold an extraordinary general meeting and vote on whether to restrict the ability of management to sell off assets without their approval.

With 180,000 small shareholders, most in Labour's north-eastern heartlands where the firm is based, the threat of an investors' revolt will worry ministers.

The Government's market credibility took a battering in 2001 over the collapse of Railtrack, which was forced into administration, leaving thousands of shareholders out of pocket.

Yesterday David Cameron warned that nationalisation would mark the final blow to Gordon Brown's economic credibility.

And he promised in future to give the Bank of England greater powers to deal with the kind of financial crisis that hit Northern Rock last autumn.

Speaking to the BBC's Andrew Marr on the AM show, Mr Cameron said: 'It will be the most complete humiliation and failure for the Government.'

Rock shares were trading just above 80p on Friday, giving the company a market value of around £370m - a tenth of its value last summer.

The Treasury is preparing emergency one-day legislation to authorise taking the bank into public ownership.

The Government would have to decide how much to pay shareholders. There is speculation that it would have to be more than the current value of shares to smooth a sale.

On current values, the Government would face paying less than £1bn for a bank with assets of around £100bn. But what looks like a steal would in fact leave the Government holding the bank's liabilities as it struggles to raise money on the markets.

Yesterday it emerged that former Lloyd's of London boss Ron Sandler has agreed to serve as executive chairman of the Rock if a private buyer can't be found.

The former Lloyd's insurance market boss and author of a 2002 report on the savings industry, said: 'In the event of nationalisation, I have agreed I will go in as executive chairman.'

His role would be 'to get things stabilised, to make sure the bank has proper plans in place'. As chief executive of Lloyd's of London he received credit for bringing the insurance market back from the brink of collapse in the Nineties.

Justin Urquhart Stewart, of Seven Investment Management, predicted the fate of Northern Rock will be known by tomorrow.

'It will be nationalised by Tuesday. The current structure is unworkable,' he said.